Question
INTRUCTIONS: Answer all 4 questions. Assignment should be submitted in Blackboard by the due date. This is a 25 point assignment six (6) points for
INTRUCTIONS: Answer all 4 questions. Assignment should be submitted in Blackboard by the due date. This is a 25 point assignment six (6) points for each correct answer and 1 point for answering all 4 questions. Partial credit will be given if you give the wrong answer but show the correct formula. A firm has the following capital structure: 1. Bonds with market value of $3,000,000 2. Preferred Stock with a market value of $2,000,000 3. Common stock, of which 400,000 shares is outstanding. Presently, each common stock is selling at $30 per share The preferred stock price per share is $60 and pays a $5 dividend. Common stock shares sell for $30 and pay a $2 dividend. Dividends for common stock are expected to grow by 3%. Bond price is $950, and the bond coupon rate is 6.5%. The bonds mature in 7 years. The firms tax rate is 38%. The company has $3,500,000 in sales, and expenses of $1,200,000. The initial investment of $5,500,000 will be depreciated straight-line over 10 years. The project is expected to last 10 years.
- What is the firms Weighted Average Cost of Capital (WACC)?
- What is the firms Operating Cash Flow (OCF)?
- Using the WACC is the NPV, using the WACC (use the answer from question 1 above), and OCF (use the answer from question 2 above)?
- Based on your answer to question #3, would you accept or reject the project? Explain why?
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